VIRAGE SECOND QUARTER REVENUES UP 118% YEAR-TO-YEAR AND 34% SEQUENTIALLY

Added 33 New Customers Including Bloomberg, The Coca-Cola Company, Earthlink, Lear, Morgan Stanley, Motorola, and Warner Bros. to Close Quarter with Over 180 Customers

SAN MATEO, Calif.—October 24, 2000—Virage, Inc. [NASDAQ: VRGE], a leading provider of software products and application services that enable video for the Internet, today reported financial results for its second fiscal quarter ended September 30, 2000.

Total revenues for the quarter were up 34% to $2.6 million from $1.9 million in the prior quarter ended June 30, 2000 and 118% over the same quarter last year, reflecting strong revenue growth in all areas of the business. License revenues increased 26% sequentially to $1.4 million. Maintenance revenues grew 36% sequentially to $364,000. Application services revenues totaled $838,000, an increase of 52% from the prior quarter ended June 30, 2000.

Gross margins for the quarter improved to 24% versus 13% in the prior quarter, due to significant growth in revenues and higher capacity utilization in application services.

Pro forma net loss, which excludes $1.3 million of non-cash, stock-based charges, was $5.8 million, or $0.30 per share (based on 19.2 million pro forma, weighted-average shares outstanding). This compares to a pro forma net loss of $6.5 million, or $0.48 per share (based on 13.5 million pro forma, weighted-average shares outstanding), for the prior quarter ended June 30, 2000.

Including non-cash, stock-based charges in accordance with generally accepted accounting principles, net loss for the quarter was $7.1 million, or $0.38 per share (based on 18.7 million weighted-average shares outstanding). This compares to a net loss of $7.7 million or $2.41 per share (based on 3.2 million weighted-average shares outstanding) for the prior quarter ended June 30, 2000.

"Our business is starting to fire on all cylinders and that performance is reflected in our excellent financial results," stated Paul G. Lego, chairman and CEO of Virage. "We continue to add brand-name companies such as Morgan Stanley, Coca-Cola, and Warner Bros. to the list of those who have selected the Virage platform for their streaming video applications. We're particularly pleased that our business is growing in a balanced way across multiple market segments and that we're beginning to generate repeat business from our customer base. For the third quarter in a row, we have had a diversified sales effort with no customer accounting for over 10% of total revenues. Finally, our proven ability to deliver the Virage solution as either packaged software or application services has allowed us to meet the needs of our customers more effectively."

For the six months ended September 30, 2000, total revenues were $4.5 million, nearly double the revenues of $2.3 million reported for the same period last fiscal year. Pro forma net loss was $12.3 million, or $0.75 per share (based on 16.4 million pro forma, weighted-average shares outstanding), for the six months ended September 30, 2000, versus $4.2 million, or $0.44 per share (based on 9.5 million pro forma, weighted-average shares outstanding) for the six months ended September 30, 1999.

Including non-cash, stock-based charges in accordance with generally accepted accounting principles, net loss for the six months ended September 30, 2000 was $14.8 million, or $1.36 per share (based on 10.9 million weighted-average shares outstanding). This compares to a net loss of $4.4 million, or $2.11 per share (based on 2.1 million weighted-average shares outstanding), for the six months ended September 30, 1999.

Cash and short-term investments totaled $60.4 million as of September 30, 2000. Accounts receivable totaled $1.6 million representing 58 days sales outstanding. Deferred revenue increased by 49% to $2.8 million versus $1.9 million as of June 30, 2000. The Company had no debt as of September 30, 2000.

"We closed the quarter with a healthy balance sheet that reflects the strength of our business," said Al Castino, CFO of Virage. "We have the financial resources to execute our growth strategies. With diversified revenues, improved gross margins, and tight control over operating costs, we continue to focus on improving bottom line results."

Second Quarter Highlights

Record Customer Orders

During the second quarter, Virage added 33 new customers, bringing its total customer base to over 180. For the third quarter in a row, sales to the enterprise market were the largest category of Virage business. New corporate customers included The Coca-Cola Company, Lear Corporation, Morgan Stanley Dean Witter & Co., and Motorola, Inc.

Media and entertainment customers, both in the United States and internationally, continued to rely on Virage to transform their most valuable, branded video assets into compelling Internet content. New media and entertainment customers for Virage during the quarter included Bloomberg, Canadian Broadcasting Corporation (CBC), Earthlink, European Broadcasting Union (EBU), Sekani (formerly FootageNow) and Warner Bros.

The Company realized significant revenues in the quarter from repeat business to existing customers. For example, CNN recently announced that it had licensed the Virage platform for its digital archive project encompassing over 100,000 hours of video content. This is the fourth application of the Virage platform at CNN. [see press release dated October 18, 2000] Other existing customers who committed to new projects or installations during the quarter include BMG, CNET, C-SPAN, IDG, The Industry Standard, MGM, and PBS.

Continued Strong Growth of Virage Application Services

Virage Application Services revenues in the second quarter increased by more than 50 percent over the prior quarter. At the same time, the number of Virage-powered Internet sites grew to 75, including new sites from Business 2.0, Click2Learn.com, C-SPAN, EXPN.com, Healthology, The Industry Standard, Lexis-Nexis, MGM, PBS (Julia Child & Mathline) and Red Herring.

During the second quarter, Virage extended the reach of its application services business through distribution agreements with two leading content distribution networks, Intel® Internet Media Services and Akamai Technologies, Inc. In August, Virage announced that Intel® Internet Media Services will resell Virage-branded application services. Intel Internet Media Services will incorporate Virage's SmartEncode™ process, and video publishing and syndication services into its global streaming media distribution network. In September, Virage entered into an agreement that enables the Akamai sales force to refer Virage application services as part of their globally distributed network for Internet content delivery and streaming media.

Virage Expands Business Reach Through New Partnerships

Virage continued to demonstrate the value of its technology and extend the reach of its business through the addition of nine new developer and reseller partners during the second quarter. With the support of its partners, Virage is working to establish its platform as the de-facto standard for publishing, managing and distributing video on the Internet or corporate intranets. Virage closed the quarter with over 60 total partners, such as IBM, Informix, RealNetworks, Sony, and Sun Microsystems, who rely on the Virage platform to provide complete solutions for their customers' wide range of video applications.

Also in the quarter, Virage announced that it had extended its business to the Korean market, through a partnership with iViTech, a subsidiary of Hung Chang Co., Ltd. In an agreement that will provide a minimum of $1.5 million to Virage over the next two years, Virage has licensed its technology to iViTech, and is supervising the build-out of a full-service Internet video applications services facility in Seoul, Korea. With this agreement, iViTech has become a certified provider of Virage software and application services to the Korean market, accelerating Virage's entry into the rapidly growing Asian market for Internet video.

Virage Extends its Platform and Delivers First Wireless Application

Over the course of the quarter, Virage continued to enhance and extend its solution for transforming video into an effective online medium that is easy to publish, manage and distribute on the Internet or corporate intranets.

In September, Virage announced and shipped Virage ControlCenter™, a new workflow application that remotely controls, centralizes and automates the SmartEncode process of simultaneous video capture, encoding and indexing for multiple VideoLogger® applications. Designed to allow 24x7 remote access and control of large-scale deployments of VideoLogger, ControlCenter allows users to schedule, monitor and manage multiple video feeds and events from a remote workstation. Virage also announced two new versions of its award-winning AudioLogger™ software including real-time speech-to-text engines for German and Italian languages.

Also in September, Virage demonstrated the extensibility of its Video Application Platform by delivering Virage-enabled content for the first time to wireless PDA's. Working in partnership with C-SPAN, Virage brought television coverage of the Campaign 2000 presidential debates directly to handheld devices such as the Palm VII. This wireless application, which allows users to search for and review statements made by candidates during the debates as well as throughout the presidential campaign, extends what was already one of the largest internet video syndication projects to date, with hundreds of hours of content and over 35 destination sites including Yahoo!, CNN, Wall Street Journal, and the Washington Post.

Virage Second Quarter Webcast

Virage management will host a webcast to discuss second quarter financial performance, operating and strategic developments and forward-looking guidance at 3:00 pm Pacific Time (6:00 pm Eastern Time) today, Tuesday, October 24, 2000. The webcast will be available live at www.virage.com/ir and will be available for replay through November 30, 2000.

Virage Expands Global Operations

During the quarter, the Company made significant investments in the European market, opening its second European sales office, in Munich, Germany, and a state-of-the-art production facility in the UK that will be used to provide Internet video application services to Virage customers throughout Europe. The new facility is co-located at Virage Europe Ltd. headquarters in Pinewood Studios outside London, and is the latest addition to the Virage global infrastructure that includes production facilities in San Mateo and New York City.

Regulation Fair Disclosure

In connection with the adoption of new SEC rules governing fair disclosure (Regulation FD) and to ensure that all investors continue to have equal access to information, Virage announced today that it will provide its investors and analysts with quarterly information and some forward-looking guidance on its regular quarterly earnings webcast. Virage's guidance on future quarters is as of the date it is given. Virage does not assume an obligation to update guidance, although Virage may from time to time choose to do so. Following the discussion of guidance in its quarterly earnings webcast, Virage will continue to meet privately with investors, the media, investment analysts and others during the quarter, but will refrain from updating projections or otherwise providing any material non-public information during those meetings. Virage will keep its earnings webcast publicly available on its website (www.virage.com/ir) until commencement of its Quiet Period (defined below).

Towards the end of each fiscal quarter, Virage will have a "Quiet Period." Virage will provide no guidance during this time period, and company representatives will not comment concerning guidance or Virage's financial results or expectations. The Quiet Period will begin on the first day of the last month of each fiscal quarter and extend until the day when Virage's next quarterly earnings webcast is published. For the third fiscal quarter, the Quiet Period will be Dec. 1, 2000 through Jan. 23, 2001.

About Virage, Inc.

Headquartered in San Mateo, CA, Virage is the leading provider of solutions that enable video for strategic online applications. The Virage Video Application Platform transforms video into an effective online medium that is easy to publish, manage and distribute on the Internet or corporate intranets. The Virage platform provides content owners with the complete infrastructure for seamlessly integrating streaming video into business, entertainment and information applications. From ABC to Yahoo! over 180 customers across a broad range of markets have turned to Virage to help them improve production efficiencies and create new revenue opportunities with video. Contact Virage at http://www.virage.com/ or (650) 573-3210.

This press release contains forward looking statements as that term is defined in Section 21E of the Securities Exchange Act of 1934. Forward looking statements are denoted by such words as "will", "goal" and similar terms and phrases. Our forward looking statements are based on current information which management has assessed but which is dynamic and subject to rapid and even abrupt changes. Actual results could differ materially from those expressed or implied in our forward looking statements due to risks and uncertainties that affect our business, including but not limited to unpredictability of its future revenues, its dependence on purchases by its major customers, competition in all aspects of its business, especially among the Internet video infrastructure companies, changes in product or service profit margins due to pricing changes driven by variations in customer demand and competition, and risks of new business areas, international expansion and strategic alliances and partnerships. The forward looking statements should be considered in the context of these and other risk factors disclosed in the company's filings with the Securities and Exchange Commission, including its Registration Statement on Form S-1, as amended, available online at www.sec.gov. All forward looking statements are based on information available to the company on the date hereof, and the company assumes no obligation to update such statements.

Virage, Inc. Pro Forma Condensed Consolidated Statements of Operations

Virage, Inc. Condensed Consolidated Statements of Operations

Virage, Inc. Condensed Consolidated Balance Sheets

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